Record fall in annuity rates leave pensioners searching for retirement income

Payouts to these newly-retired pensioners have fallen by up to 15% this year.

Annuity rates are plunging so fast that 2016 is set to mark their biggest ever annual fall, new research has found.

Annuities are the most common income source for pensioners but their rates have been in steady decline for years, leaving people facing a dwindling retirement income.

The average annuity income for a 65-year-old has fallen by 14.8% on a £10,000 purchase price and 15% on a £50,000 purchase price so far during 2016.

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“Worst-ever year” for income

Previously the biggest annual annuity income fall occurred in 2012 when rates fell by 11.5%.

“This has been a truly awful year for annuity rates, with rates falling to all-time lows,” says Richard Eagling, head of pensions at Moneyfacts, which produced the research.

“This is particularly disappointing as the stock market volatility we are experiencing has re-emphasised the importance of a secure lifetime income for many retirees.”

“Unfortunately record low gilt yields following the EU referendum result, the impact of Solvency II legislation and a significant weakening of competition in the annuity market have all exerted considerable downward pressure on annuity rates during 2016.”

How annuity rates have fallen

Calendar year	Average annual change in annuity income*
2006	1.3%
2007	4.4%
2008	-2.2%
2009	-8.7%
2010	-2.7%
2011	-8.4%
2012	-11.5%
2013	9.1%
2014	-5.7%
2015	-3.1%
2016	-14.8%

*Figures based on a male aged 65 purchasing a standard level without guarantee annuity

What you can do

Annuity rates may be falling but there are steps you can take to ensure your pension pot is converted into the best possible income for you.

The main thing is to get advice and make sure you shop around for the best possible options.

If you don’t shop around you could risk losing 20% of your lifetime income, according to pension advisory specialist My Pension Expert.

“Retirement planning can be confusing at all stages of life and after working hard to secure a pension pot, people need coherent and honest advice which is in their best interests,” says Scott Mullen, director at My Pension Expert.

The company states that 45% of its clients change from a lifetime annuity to another product more suited to their personal circumstances after they have received professional advice.

“Many of our customers comment that they have put off investigating their pension options because they don’t understand the technical jargon, which is understandable,” says Mullen.

“Unless they have worked in the financial services industry themselves, it is also unlikely they will be aware of the options that are now open to them.”

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Shop around

However, plunging annuity rates combined with the huge increase in retirement income options created by the pension freedoms that came in last year mean it has never been more important to shop around when it comes to securing your pension income.

“Most people are bamboozled by which product is best suited to their unique circumstances.

While moves are being made by the government to provide guidance to more people, this won’t provide a personal recommendation or do the shopping around for them,” says Mullen.

“With an ageing population, it is in everyone’s best interests to demystify pensions and ensure those who have spent their lives investing in one, get the best income they can.”